Stock broker fraud is any deceitful behavior, negligence, misrepresentation, or omission of information done by an independent stockbroker agent, investment company, or supervisor to investors that leads to financial loss. It is essential to understand that not all losses incurred in the stock exchange market are due to fraudulent behavior. Some instances may be genuine. However, when a stockbroker or investment company puts their interests before that of their client or intentionally plans to scam the client of their investment, these are considered examples of stockbroker fraud.
A FINRA lawyer is equipped with the best securities legal information. They understand the devastation that comes with significant financial loss due to negligence by the stockbrokers. The law protects all investors against fraudulent stockbrokers. Here are the common fraudulent stockbroker behaviors:
Types of Stockbroker Fraud
Giving false information to the client to secure your interests can be classified as negligence or stockbroker malpractice. Similarly, offering Ponzi schemes to a client, where the stockbroker promises quick cash that is not based on legitimate profit, is also considered stockbroker malpractice. The risk associated with Ponzi schemes is that they can lead to significant financial losses.
Omission of Information
Stockbrokers are legally required to inform their clients of the risks and rewards of an investment. If, during the contractual period, the stockbroker intentionally omits a piece of crucial information that leads to detrimental financial losses, then they can be held accountable in court.
Breach of Fiduciary Duty
As per the law, stockbrokers and investment firms owe their client investors a fiduciary duty. This means that they are supposed to act in the best interests of their clients. If there is a breach of fiduciary duty, then stockbrokers will be held accountable in a court of law for breach of contract.
At the same time, stockbrokers cannot make transactions by making a purchase or by selling without written consent. The stockbroker or investment firm should inform you of all the information pertaining to your interests. Before any purchase or sale, they should seek consent at every step of the way until the trade is complete.
The stockbroker or investment firm may engage in an unusually high number of transactions without seeking what is best for their client. Cases of churning frequently occur where stockbrokers are paid on a commission basis. If a court complaint and subsequent investigation discover that trading transactions were not within the client’s best interests, a court may deem what occurred stockbroker fraud.
Additionally, if a stockbroker makes unsuitable purchases, it may be considered stockbroker fraud.
Lack of Supervision
Investment firms that fail to supervise their employees closely may face civil court cases regarding fraudulent stockbroker activities. The investment firm is responsible for its staff members’ education regarding regulations, and they should continuously monitor them to ensure that optimum service is delivered to their clients. Failure to do this results in the firm being liable for the stockbroker misconduct.
Failure to Diversify
The stock exchange sector is highly profitable and an extremely sensitive market. It is recommended to diversify your investment portfolio to minimize risk. Diversification of the stock portfolio into various securities will balance the equities earned. Consider investing in real estate, technology, or bonds.
Breach of Contract
If the stockbroker or investment firm fails to honor the terms and conditions as stipulated in the initial investment contract, they will be liable for breach of contract.
Conclusion | What Is Stock Broker Fraud
In summary, all investors should know that the law protects them against fraudulent stockbrokers.